Been reading threads on here for a while and am recently in a posistion where I would appreciate some guidance. Little background, I am in a 5 year MBA program and wrapping up this spring while I work for a value add developer in a northeast market. It is a decent size shop, more than 60 people and properties in five states. Unfortunately, I haven’t been doing much of the type of work I was hoping to do, such as underwriting and sourcing deals. My role is more of a development management role where I coordinate with attorneys, architects, engineers, and GCs. I have been there four months and this has been the extent of my work. The principal of the firm took me out to lunch today and told me he wants to know if I would like to stay on post graduation. He wants me to grow into a role where I am taking more work off of his desk and gn the road with him and the partners to check out deals. He told me being taken under the wing of a developer straight out of School is a great opportunity to learn a lot quickly.
My entire dilemma is I feel like I am skipping a step in the sense that I am not learning much underwriting or getting any Argus experience. Prior to working with the firm I was an intern at HFF where I did a lot more valuation work. I would like to become a deal guy down the road and feel like it is imperative to understand how to value assets. I have interviews lined up with HFF, Duff and Phelps, and Altus group this spring. Thoughts?
I feel like most people go into developement after starting in valuation, brokerage, or REPE. While I find it valuable to be taken under the wing of the principal and groomed, I feel like I am skipping a valuable step in the process. I am currently the youngest guy in the office by 10 years and feel there is opportunity to grow. If I did stay any thoughts on what to ask for salary.
Overall looking for career path advice. I know I’m all over the place here.
I was in investment sales and I didn't learn much in the way of underwriting other than "standard" expense metrics for multifamily. This helps when underwriting the stabilized portion of a development but that's about it. I certainly didn't learn how to think about development deals.
What I've learned now that I'm pursuing development opportunities on my own and through speaking with seasoned developers (millions of SF+) is that the underwriting is pretty simple from a financial engineering perspective. For example, see the thread about cap rate spreads. That's what all most big developers underwrite to—including shops like Avalon. They'll have an analyst do the DCF for investors but, if you speak candidly with executives, they'll tell you that IRRs are meaningless. There are too many moving parts that affect timing throughout a multi-year development.
So it seems like you have an opportunity to learn how a successful developer thinks and manages the process. It also sounds like you'll be able to get pretty good at learning how to do cost projections, which is way more difficult than learning how to interpret rent comps. Most developers aren't financial wizards so don't feel like that's the only path to success. In fact, the wealthiest developers I know aren't finance savvy at all. They use very basic metrics based on a strong understanding of costs and the market.
Hope that helps.
I don't know much about comp structure since my career experience is either in investment sales or now being an entrepreneur on my own. Others will be able to help with that.
Regarding valuation shops: if you're a truly capable individual in a position to move up the ladder quickly then working at a valuation shop is a waste of time and potential.
I'm getting the vibe (and I hate the word vibe) that you're a box checker that thinks it's necessary to learn through working your way through specific positions—call them rungs on a ladder. If you want to learn how to underwrite, do the following:
You now know the technical side of modeling better than 99.9% of brokers and first-year analysts.
Take the information you learn on the development management side of things—arguably the most important and applicable information out there—and use it to engineer a model for your firm's most recent acquisition. See if you can make sense of it. If you can't, discuss with the owner why he made the purchase and adjust your model accordingly. Do this a few times and you now know how the owner's thought process manifests itself in a spreadsheet.
You can then retire to a villa in the Mediterranean while only taking calls from Steve Ross when you feel like it.
This is the most accurate post for RE development on this site. Senior exec's wing it most of the time because they can draw from experience. Modeling is a great place to start, but as stated above experience and intuition are key drivers for success as a developer. Don't pass up this opportunity, you will regret it later on.
Second this. Appraisal isn’t going to help. You’re already in development which is the goal of a lot of the kids at HFF, JLL, etc. Why take a step backwards?
If you want to learn about finance, valuation, and modelling, pull a Will Hunting and buy a textbook or two. A quick google search led me to “Foundations of Real Estate Modelling” by Roger Staiger. The description for the book is as follows:
“Foundations of Real Estate Financial Modelling is specifically designed to provide an overview of pro forma modelling for real estate projects. The book introduces students and professionals to the basics of real estate finance theory before providing a step-by-step guide for financial model construction using Excel. The idea that real estate is an asset with unique characteristics which can be transformed, both physically and financially, forms the basis of discussion.
Individual chapters are separated by functional unit and build upon themselves to include information on:
Amortization Single-Family Unit Multi-Family Unit Development/Construction Addition(s) Waterfall (Equity Bifurcation) Accounting Statements Additional Asset Classes
Further chapters are dedicated to risk quantification and include scenario, stochastic and Monte Carlo simulations, waterfalls and securitized products. This book is the ideal companion to core real estate finance textbooks and will boost students Excel modelling skills before they enter the workplace. The book provides individuals with a step-by-step instruction on how to construct a real estate financial model that is both scalable and modular.
A companion website provides the pro forma models to give readers a basic financial model for each asset class as well as methods to quantify performance and understand how and why each model is constructed and the best practices for repositioning these assets.”
I would much rather read that book on the weekends than leave development to go work for in a different part of the industry, and then try to get back into development.
The only thing that might be of benefit from working at HFF would be learning sales and how to raise capital.
Getting a development or acquisitions position in this market environment can be quite difficult. If this is a reputable, well-capitalized shop with good deal flow and a decent structure where you can get some mentorship, it is definitely worth considering sticking around. Personal opinion is:
1) Tell this guy up front that you are concerned about getting some of the valuation/front-end deal experience. Offer to spend extra time helping the acquisitions or capital markets teams. I'd be willing to bet almost anything he sees it as a positive for your overall development and reciprocates by including you in acq/dispo meetings, letting you look at models, etc. 2) If you are in a good shop, there is an incredible amount of information at your fingertips. For example, at my company when I have down time I just dig through the shared drive for other departments and read stuff to get educated. 99% you will be able to pull up acq models and dig through them/teach yourself, or come up with questions for other people at the company. Again, nobody will see this desire to learn as a negative. 3) Underwriting jockeys are a dime a dozen in this business. There are far, far fewer development guys that know how to put together a deal through entitlements/design/construction effectively than there are analysts with underwriting experience. It may be a great niche to develop, if it interests you.
With the understanding that people are different and have different goals, this is all very confusing to me.
Being a development manager is what development is. Sourcing and underwriting deals takes up 5% of a developer's time? Maybe less?
It is, and more importantly, it sounds like you'll be progressing from managing deals to sourcing deals.
NOI / Cap rate. That's how assets value. It's not rocket science.
I think you're dealing with not fully understanding the hierarchy in real estate while existing in a role that is not what you want to do. It sounds like you want to be in acquisitions, not development. Nothing wrong with that - it's just different.
Most people start in brokerage or whatnot because they have to - because 99% of the time developers and REPE firms don't take kids straight out of school. Your consternation about skipping a step is amusing in this sense because skipping a step would be a dream to most.
I don't mean to sound dick-ish, but as someone on the ownership side, and that refers to development and private equity, I would never in a million years go back to doing third party shit. It's both going backwards and down the ladder.
If you don't like development and want to be a "deal guy" - either try and find an acquisitions role with a REIT or ownership group or just tell your boss that is your goal, because it seems like that's where your boss wants you to trend anyhow.